Let’s flashback to my long ago proposed “Buffett Rule” … designed to get fat cats like him to stop whining about their too low taxes and pay their fair share.

=====

According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”

Buffett & friends say:

“Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.”

We (the wealthy) have “benefited significantly” by government investments in schools, infrastructure. and public safety, among other things, so it is “right morally and economically” to have a “significant” tax on large estates because it “promotes democracy by slowing the concentration of wealth and power.”

“It is right to have a significant tax on large estates when they are passed on to the next generation … it is right morally and economically, since an estate tax promotes democracy by slowing the concentration of wealth and power.”

OK, so what constitutes a sizable estate and how much of it should the government take?

Since Buffett shed his hypocritical “please tax us more” sham and hopped on the BK inversion deal, I thought it was fair to flashback to some of Buffett’s pro-tax rants and our proposed “Buffett Rule”

=====

According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”

Buffett & friends say:

“Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.”

We (the wealthy) have “benefited significantly” by government investments in schools, infrastructure. and public safety, among other things, so it is “right morally and economically” to have a “significant” tax on large estates because it “promotes democracy by slowing the concentration of wealth and power.”

“It is right to have a significant tax on large estates when they are passed on to the next generation … it is right morally and economically, since an estate tax promotes democracy by slowing the concentration of wealth and power.”

OK, so what constitutes a sizable estate and how much of it should the government take?

According to CNBC, Warren Buffett is one of several dozen wealthy people who have signed a statement calling for a “strong tax on large estates.”

Buffett & friends say:

“Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.”

We (the wealthy) have “benefited significantly” by government investments in schools, infrastructure. and public safety, among other things, so it is “right morally and economically” to have a “significant” tax on large estates because it “promotes democracy by slowing the concentration of wealth and power.”

“It is right to have a significant tax on large estates when they are passed on to the next generation … it is right morally and economically, since an estate tax promotes democracy by slowing the concentration of wealth and power.”

OK, so what constitutes a sizable estate and how much of it should the government take?

Everybody knows that Warren Buffett feels awful because his marginal tax rate is less than his secretary’s …. and so, he wants fellow millionaires & billionaires (i.e. those folks making more than $250,000) to throw more money into the Federal coffers.

For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.

Now that Buffett has leveraged the tax laws to amass his $62 billion fortune, he advocates higher taxes for high-earners.

He’s suddenly amped about everybody paying their fair share.

Give me a break.

Let’s walk through Saint Warren’s personal “fair share” plan.

First, to the extent that any of Buffett’s wealth is in stocks with “unrealized capital gains” … the the dough gets bequeathed at a “stepped-up basis”.

English translation: no capital gains get paid on his “unrealized gains” … ever !

Nice dodge, right?

Ken’s Buffett Rule doesn’t fix that.

But, the big daddy tax dodge is that Buffett is bequeathing his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.

If his buddy Barack gets his way, estates will be taxed a minimum of 45%.

That means that Buffett dodges over $25 Billion in Federal estate taxes by channeling the estate to his buddy Gates.

Note: According to the Wash Post, Obama’s Buffett Rule is only projected (by Obama) to raise $46 billion over 10 years … $4.6 billion annually … and most analysts think that number is a pipe dream.

So, Ken’s Buffett Rule would cop over half of Obama’s 10 year Buffet Rule tax haul, while isolating the tax to the man who won’t shut up about wanting pay his fair share … put YOUR money where your mouth is Warren.

Great idea, right?

P.S. For folks who worry about the collateral damage done to charities, the deduction limit can be raised to $1 billion per estate …. that would exclude practically every estate … except Buffett’s.

Under the legislation, taxpayers can check a box on their taxes and send in a check for more than they owe to the IRS.

“If Warren Buffett and others like him truly feel they’re not paying enough in taxes, they can use the Buffett Rule Act to put their money where their mouth is and voluntarily send in more to pay down the national debt, rather than changing the entire tax code to inflict more job-killing tax hikes on hard-working Americans.”

Current law already allows taxpayers to send money to pay down the debt, but the process is a bit onerous.

Under their new plan, taxpayers would have an easy option on their tax returns allowing them to pay more.

Under the legislation, the money would go directly toward reducing the debt.

Then last nite, Buffett disclosed that he has been diagnosed with prostate cancer. Consistent with the experience of several of my friends, Buffett says it’s not life-threatening, given the early detection and high success rate of treatments. I wish him well … in our family, we take cancer very seriously.

For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.

Now that Buffetthas leveraged the tax laws to amass his$62 billion fortune, he advocates higher taxes for high-earners.

He’s suddenly amped about everybody paying their fair share.

Give me a break.

Let’s walk through Saint Warren’s personal “fair share” plan.

First, to the extent that any of Buffett’s wealth is in stocks with “unrealized capital gains” … the the dough gets bequeathed at a “stepped-up basis”.

English translation: no capital gains get paid on his “unrealized gains” … ever !

Nice dodge, right?

Ken’s Buffett Rule doesn’t fix that.

But, the big daddy tax dodge is that Buffett is bequeathing his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.

If his buddy Barack gets his way, estates will be taxed a minimum of 45%.

That means that Buffett dodges over $25 Billion in Federal estate taxes by channeling the estate to his buddy Gates.

Note: According to the Wash Post, Obama’s Buffett Rule is only projected (by Obama) to raise $46 billion over 10 years … $4.6 billion annually … and most analysts think that number is a pipe dream.

So, Ken’s Buffett Rule would cop over half of Obama’s 10 year Buffet Rule tax haul, while isolating the tax to the man who won’t shut up about wanting pay his fair share … put YOUR money where your mouth is Warren.

Great idea, right?

P.S. For folks who worry about the collateral damage done to charities, the deduction limit can be raised to $1 billion per estate …. that would exclude practically every estate … except Buffett’s.

Along with more than 30 million other taxpayers, I got caught by the Alternative Minimum Tax (AMT).

There are about 130 million Fed tax filings each year … about half of them pay no Fed income taxes (or get a refundable credit) … that means that about half of all tax payers get hit with the AMT. it only takes about $75,000 in income to make somebody a candidate for the AMT.

This year — in part because of the hoopla re: the Buffett Rule — I dug dig into the AMT calculations rather than just take Turbo Tax’s answer and run.

The bottom line — based on my dissection — is that the AMT requires that high earners pay about 28% on their ordinary taxable income — wages, interest, pensions, etc.

So, on ordinary taxable income the Obama-Buffett Rule (OBR) boosts the rate from 28% to 30%.

Big deal, right?

The real impact is what happens to capital gains and “qualified” dividends — which are currently capped at a 15% rate — even under the AMT.

Under the Obama-Buffett Rule, capital gains and qualified dividends would be taxed at 30% — a doubling of the current AMT rate.

Now, that is a big deal.

When you cut to to the chase, the Obama-Buffett Rule is simply a doubling of the capital gains tax rate — selectively applied to those people who earn most of the capital gains.

The OBR simply takes capital out of play from the private sector and transfers it to the government sector.

If you think that the government does a better job allocating capital than the free market, then you gotta love the Obama-Buffett Rule.

If you think the government uses capital less efficiently than the private sector, you gotta hate it.

The dialogue that caught my attention had to do, of course, with Buffett’s whining that his taxes are too low … paired with the hypocrisy that he’s sheltering his estate from taxes by dishing his end-of-life dough to the Gates Foundation.

CNBC’s Joe Kiernan observed to Buffett:

I’ve gotten you to admit in the past that one of the reasons you think the Gates Foundation will do a lot better with your 50 or 60 billion is because charities have a better — a much better reputation for watching how money is spend and for doing more good.

Buffetts retort:

Anytime an organization is as big as the US government or any other government, they are not going to be as efficient, obviously, as smaller organizations.

Kiernan followed up:

So with all that in mind, can you at least see how someone might, on an intellectual basis, be opposed to just giving a blank check to such a profligate entity?

Buffett’s answer:

On the other hand, we have successfully defended the country, we’ve built the greatest industrial machine the world’s ever seen, we’ve built the richest population the world’s ever seen.

The truth is, we can have a country that works wonderfully with 19 percent or so of revenues going to Washington and spending 21 percent.

Say, what?

Kiernan politely went in for the kill:

If the government was a business and Berkshire was looking at it, there’s no way Berkshire would even take a 1 percent stake in the government with their track record of investments. Right?

At the risk of stifling the tax rate hysteria with facts, the Congressional Research Service did a great study on the “Buffett Rule”.

One of the key charts – with a couple of Homa Files accentuators – says that

“Millionaires & billionaires” tax rate is – on average – 11 points higher than folks making under $100k.

About 1 in 4 millionaires & billionaires (less than 100,000 tax payers) – those with the lowest effect tax rates – pay a lower rate than about 10% of the more than 100 million folks making under $100,000

Applying the SOTU Buffett Rule – minimum 30% for folks making more than $1 million – would jack up taxes for about 1/2 of millionarires and billionaires.

Is jacking the rate on about 200,000 taxpayers really going to get us out of this fiscal mess we’re in?

The cameo by Buffett’s secretary at last night’s SOTU address, and Mitt’s released tax returns have re-elevated the issue “coddling the rich” with low tax rates (compared to their secretaries).

Last fall, when we dissected Buffett’s taxes, we coined a measure: the GBSR™ – “Give Back to Society Rate”

We defined the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

We crunched the numbers and concluded that Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ of almost 50% (47.6% to be precise).

We concluded that Buffett may not be the piker that he claims to be. And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

In Romney’s case, his release says that he made $21 million … paid $3 million in taxes … and donated $3.7 million to charities. So, his tax rate may sound meager @ 14%, but his GBSR™ is almost 32% – and that’s not counting state & local income taxes. My bet: add S&L taxes in and Mitt ‘s GBSR™ is way over 40%, too.

So, it just may be that the tax code is leading fat cats to do the right thing – it’s just that they’re giving much of their dough to private charities instead of the Feds.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair. Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ – “Give Back to Society Rate”

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above. Her charitable deductions would be at most $5,700. Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

Warren Buffet’s secretary, Debbie Bosanek, served as a stage prop for President Obama’s State of the Union speech. She was the President’s chief display of the alleged unfairness of our tax system – a little person paying a higher tax rate than her billionaire boss.

We can get an approximate answer by consulting IRS data on tax rates by adjusted gross income, which would approximate her salary, assuming she does not have significant dividend, interest or capital-gains income (like her boss).

I assume the tax rate Obama refers to is from her own earnings.

Insofar as Buffet (like Mitt Romney) earns income primarily from capital gains, which are taxed at 15 percent (and according to Obama need to be raised for reasons of fairness), we need to determine how much income a taxpayer like Bosanek must earn in order to pay an average tax rate above fifteen percent. This is easy to do.

The IRS publishes detailed tax tables by income level.

The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent.

The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income depending on the type of property you give and the type of organization you give it to.

Here’s the English translation.

In general, for all typical charities,e.g. churches, schools, hospitals, disease-causes, a taxpayer can deduct 100% of his charitable … but there’s a ceiling …. the total amount of charitable deductions is limited to 50% of the taxpayer’s AGI.

So, if a taxpayer had $100,000 AGI, he can write $50,000 in checks to qualified charities and deduct all $50,000. If he writes checks for $60,000 … he can deduct only $50,000.

The major exception: donating appreciated assets (think “stocks). A taxpayer can claim a charitable deduction for the fair market value of the asset, pay no capital gains, and deduct up to 30% of his AGI.

Things get a bit trickier if there are both cash donations and appreciated assets in the mix.

The general takeaway: up to a total of 50% AGI, all charitable contributions can be deducted ,,, slightly less if the donations are stock not cash.

That said, the Buffett analysis survives intact.

We estimated charitable contributions at $20 million …about 1/3 of Buffett’s $63 million AGI … so, based on our anlysis, he can deduct all of his charitable deductions, sheltering all or most of his ordinary income.

Whew.

* * * * *

Separately, I got a few emails and replies commenting on the HomaFiles-coined GBSR™ – “Give Back to Society Rate” … the sum of fed & state taxes, and charitable contributions divided by AGI.

Some of the emails said “you’re on to something”, so I’ve trademarked the metric by adding the legal “TM” super-script.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair. Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ — “Give Back to Society Rate”

Since I’m coining the measure, I’ll define the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities. ,,, for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above. Her charitable deductions would be at most $5,700. Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

Whew.

Now let’s start pulling things together.

The chart below makes the obvious clear … at least to me to me.

Note that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our secretary surrogates.

Now that’s a gap!

But, I haven’t seen anybody in the mainstream media even notice. They, and Chuckie Shumer, just focus on the rate to taxable income.

What’s going on?

Same story as before: Buffett shelters over a third of his AGI – and practically all of his ordinary income with charitable deductions.

Simply stated, because he gives money away to charities (e.g. the Bill Gates Foundation) he only has to give a pittance to the Feds.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

Today, let’s look at the popular headline: “Buffett’s Tax Rate Lower than His Secretary’s”

Since we don’t know his secretary’s specifics, we looked at 3 hypotheticals: a single taxpayer (i.e. not married), all ordinary income, no dependents, standard deduction (i.e. doesn’t itemize).

The bottom line: The headline seems reasonable. In each of 3 income scenarios ($50k, $75k and $100k) the rate to taxable income is in the lower 20s – about 5 points higher than Buffett’s rate.

But, keep reading …

First, these are scenarios the get to the highest possible tax rates – a joint-married filer with dependents and itemized deductions would pay less.

Nonetheless, it’s hard to imagine an ordinary person closing the gap to Warren’s rate unless they had a big mortgage deduction and played the charity angle: giving a lot to charity to shelter income down to the 15% rate.

For example, if our 50K single taxpayer had no mortgage interest and paid about 5% in state & local taxes, he could make a charitable contribution of about $10,000 and land in the 15% tax bracket (which is capped at $34,000)

Here’s the arithmetic: $50,000 less $3,650 in exemptions, less about $2,500 in state and local taxes, less $10,000 in charitable deductions is less than$34,000 – which is the top of the 15% bracket.

The charitable deduction would be 20% of AGI … which is lower than Buffett’s apparent 30% donations’ rate ($20 million / $63 million = 31.4%) … but probably not practical at that income level.

And, using the same logic, getting our $75k and $100k ordinary income earners into the 15% bracket would require a charitable giving rate approaching 50% of AGI.

That certainly doesn’t seem practical.

What’s the point?

Buffett’s case illustrates how a completely discretionary itemized deduction – charitable contributions – can be used by folks – especially rich folks – to shelter ordinary income from taxes … and get them to a low effective tax rate.

That’s not a shot at charitable deductions – more on that in subsequent posts – just raises the point that closing the gap between Buffett and his secretary may be less a matter of raising tax rates (on capital gains) and more a matter of how deductions are allowed and applied.

I think I have some interesting unreported angles on the nums that I’ll be dribbling out in this and subsequent posts.

First, the facts:

Buffett’s adjusted gross income (AGI) was $62,855,038 last year

His taxable income was $39,814,784

His federal income tax bill came to $6,923,494, or 17.4% of his taxable income.

He said The roughly $23 million difference between his AGI and taxable income was due largely to deductions he took for charitable giving and local taxes

He paid $15,300 in payroll taxes … but, so what?

You may remember, the buzz us about how Buffett’s 17.4% is lower than his secretary’s mid-20s tax rate.

Conventional wisdom is saying that the issue stems from so much of Buffett’s income comes from capital gains and dividend (taxed at 15%) rather than ordinary earned income (taxed at 35% at the margin).

A simple analysis suggests that for Buffett to have an overall 17.4% tax rate, his $40 million in taxable income must be split roughly $35 million from capital gains & dividends (taxed at 15%) and $5 million in ordinary income (virtually all taxed at 35%).

But, not so fast …

I’m not a tax adviser but …here’s something that I think is right and that I bet you didn’t know:

Mechanics for applying the tax code work to the tax payer’s advantage in at least one very import way … deductions against income aren’t applied pro-rata across tax categories – ordinary income and capital gains … rather they get applied to the highest taxed category of income first.

Said differently, deductions are first applied to ordinary income, then to capital gains (if there are any left).

That’s a big deal … for Buffett and for us ordinary folks.

What it could mean for Buffett is that the could pay his 17.4% rate with an almost 50 / 50 mix or ordinary income and capital gains.

Community groups and progressive organizations that have been working with the broader Occupy Wall Street movement marched on the homes of JP Morgan Chase CEO Jamie Dimon, billionaire David Koch, hedge fund honcho John Paulson, and News Corp CEO Rupert Murdoch.

The millionaires and billionaires are being targeted for what event organizers called a “willingness to hoard wealth at the expense of the 99%.”

Why not stake out Warren’s place until he agrees to forego all of his tax loop holes (e.g. deductible contributions to his buddy Gates)?

Or, better yet, Washington … picket the millionaire who has been pushing hard for class warfare.

Out of 140 million tax filers, there 1,470 millionaires who pay no taxes of them.

Doesn’t sound like they’re paying their fair share, but there aren’t many of them … and, I bet each has an interesting story.

More generally, according to the IRS, folks making:
• More than $1 million pay 24% of income in taxes
• $200,000 to $300,000 pay 17.5%• $100,000 to $125,000 pay 9.9%• $50,000 to $60,000 pay 6.3%• $20,000 to $30,000 pay 2.5%

And, the IRS reports that – as a % of income tax revenues:
• The top 1% pays 39%
• The top 5% pays 60%• The top 10% pays 72%• The bottom half pays 3%

According to the WSJ: “The SEC has given S&P a so-called Wells notice alleging that S&P violated federal securities laws with respect to its ratings for a collateralized debt obligation known as Delphinus CDO 2007-1”.

Hmmm. About 4 years after the fact … but only a month or so after S&P lower the U.S. credit rating.

Coincidence.

Probably so.

And, here’s another twist: Moody’s was also up to its eyeballs slapping AAA ratings on CDOs.

But, Moody’s isn’t under investigation.

Did I mention that Warren “Please Tax Me More” Buffet owns a big chunk of Moody’s.

The vast majority of this group is poor. They won’t owe individual income taxes because they won’t earn a lot of money to start, and various exemptions, like the earned income tax credit, will wipe out any tax liability … maybe even getting them a refundable credit – a check in the mail from the Feds.

Among families making more than $100,000, there will also be half a million tax units that will also pay no income tax.

And, 7,000 millionaires will pay no individual income tax.

How can that be?

Couple of ways:

Tax-free income … think gov’t bonds

Catastrophic losses … e.g. mansion gets wiped out by a hurricane, very high uninsured medical expenses

The press were abuzz yesterday debunking O’s key premise that millionaires pay taxes at a lower rate than teachers making $50,000.

Yesterday, we showed that a married teacher with 2 kids who earns $50,000 pays at a 5.5% rate. Even if you add 7.65 in payroll taxes to that, the resulting 13.15% is still less than a millionaire who pays only capital gains taxes at 15%.

In 2008, the last year for which such data are available, the IRS reports that those who made more than $1 million in adjusted gross income paid an average income tax rate of 23.3%.

That’s slightly lower than the 24.1% rate paid by those making between $500,000 and $1 million, probably because the richest are like Mr. Buffett and earn more from capital gains and dividends.

The rate for a relative handful of the rich — 400 people — fell to 18%.

But nearly all millionaires still paid a rate that is more than twice the 8.9% average rate paid by those earning between $50,000 and $100,000, and more than three times the 7.2% average rate paid by those earning less than $50,000.

The larger point is that the claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum.

I think the President should modify his Buffett Rule to read: anybody who earns more than $1 million … and who has accumulated wealth greater than $25 billion … and who plans to bequeath practically all of his estate to a pal’s “foundation” shall pay an effective income tax rate of 90% … unless he /she whines that they’re being coddled, in which case the tax rate escalates to 100%.

My real recommendation: limit the charitable estate exemption to $1 million so that Buffet has to fork about half of his estate over to the government … that’ll keep him from bring coddled in the grave.

At 7:25 pm last Thursday, Obama repeated the tired refrain about how Warren Buffet pays less taxes than his secretary and wants to pay more – his fair share.

Cutting to the chase: Buffett pays more in dollars, but pays at a lower rate.

Why?

Because most of Buffett’s income is “unearned income”.

English translation: capital gains and dividends.

So, there are only two ways to get Warren-the-sage on an equal rate footing with his secretary: (1) lower marginal tax tax rates on the secretary’s earned income or (2) increase Buffett’s tax rate on his capital gains … to be taxed at the same rate as “earned income”.

Here’s the good news for Buffett: thanks to the ObamaCare bill, Warren will be paying a higher tax rate on his cap gains and dividends starting in 2013 (after the next election, of course).

For those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains.

And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Since Warren won’t just pony up extra dough to the Treasury (why not?), I suggest that:

All personal wealth (not income !) over $1 billion should be confiscated immediately.

Since he won’t shut up, I suggest that the extension of the Bush tax cuts come with the following modifications:

For anyone with wealth (not income) totaling more than $1 billion, all current income – whether ordinary income or capital gains — shall be taxed 95%.Call it the Gates / Buffet tax.

For anyone with wealth totaling more than $1 billion, no deductions shall be allowed against adjusted gross incomes. Specifically, charitable deductions shall be made after-tax.Sorry, Bill, but I want to see more of Buffet’s money going to the Feds instead of Gates Foundation … just like mine.

For all citizens, an estate can be sheltered by a maximum of $1 million of charitable gifts.Ditto the prior point. Confiscate Buffet’s estate and throw it into the gov’t grinder.

And, while we’re at it:

For all members of Congress (House & Senate) and all members of the Administration who report directly to the President, no income tax deductions shall be allowed and all income – regardless of source, type or amount – shall be taxed in its entirety at the highest marginal rate paid by any taxpayer. Let’s make the Congressional tax discussions a bit more personal.

For all retired members of Congress and any retired members of any Administration who reported directly to the President, all government pension and retirements benefits (including gov’t paid healthcare premiums) shall be taxed in its entirety – with no allowable deductions — at the highest current marginal rate paid by any taxpayer.Let them ‘feel our pain’ everyday when they wake up